**6. Conclusion**

This study aims to discover the ability of the yield spread to predict economic growth over the last two decades, up until 2016. Based on the priori expectation on the predictive ability possessed by the yield spread on growth, this study uses ARDL approach to cointegration and error correction models to determine whether there is evidence of relationship between yield spread and growth, in long run and short run. This paper makes two contributions to the existing literature. First, it examines *Has the Yield Curve Accurately Predicted the Malaysian Economy in the Previous Two Decades? DOI: http://dx.doi.org/10.5772/intechopen.92214*

the relationship between slope of the yield curve (yield spread) and growth based on updated data and over a 20-year time period. Second, it is the first to employ the ARDL method on yield spread analysis, in consideration of the different order of integration among the variables tested.

The empirical result proves the existence of a long-run relationship between the yield spread and growth in Malaysia. Though significant, the instability of the yield spread to affect the movement of growth in this analysis does not support the priori expectation on the predictive power of the yield curve, making it less reliable to be used as forecasting tool in the general economic condition. Further expansion of the local bond market in terms of issuance and trading may be the one of the keys to establish a much stronger relationship and predictive power of the yield curve in assessing the direction of the Malaysian economy.
